EU's Microsoft Verdict Raises Questions

"Today's decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a strong dominant position." With those words, European Union (EU) Competition Commissioner Mario Monti set the stage for an epic battle with the world's largest software company, a battle that could ultimately have even wider repercussions than Microsoft's US antitrust battle.

Despite the general similarities, the European antitrust case is startlingly different from the suit Microsoft faced in the United States. Microsoft's legal challenges mounted quickly 6 years ago and hit a crescendo with Judge Thomas Penfield Jackson's Findings of Fact and, after early settlement attempts failed, his final verdict against the company, in which he recommended that Microsoft be split into two separate companies, one to sell OSs and the other to sell applications. After that decision, however, the government slowly dismantled the US case, which ended with a whimper when Microsoft ultimately settled it in late 2001.

In Europe, the case against Microsoft actually began as two quiet and separate investigations--one regarding server software and the other focused on media players. The EU eventually combined the investigations into one probe, which occurred out of sight of the press. Unlike the high-profile US case, the Europeans went about the business of proving Microsoft's antitrust abuses quietly and without many leaks. Slow-moving and precise, the Commission regulators obviously wanted to avoid their US counterparts' procedural mistakes and present a case that was as clear cut and defensible as possible.

The Commission certainly met that goal, and yesterday's verdict was uniformly met with positive reactions from Microsoft's competitors. "The European Commission has formally declared that Microsoft's media player bundling strategy is illegal and has established the guideposts for future bundling cases," RealNetworks Vice President and General Counsel Bob Kimball noted. A RealNetworks complaint instigated Europe's investigation into Windows Media Player (WMP), according to sources.

"Sun applauds the European Commission's decision in the Microsoft case," said Lee Patch, vice president of legal affairs at Sun Microsystems, the company that instigated the European server-software investigation. "Because the decision is forward looking and covers future product releases, consumers can be confident that other workgroup server suppliers will be able to meet their needs even as Microsoft introduces new products."

Outside of competitive circles, reactions to the verdict were mixed, although Microsoft itself condemned the decision as overly harsh and contradictory to the remedies it faced as a result of its US antitrust settlement. "Every company should have the ability to improve its products to meet the needs of consumers," said Microsoft CEO Steve Ballmer, whose public statements about the European case, frankly, are far more subdued than they were when he discussed the US Department of Justice (DOJ) decision a few years ago.

Many analysts believe, however, that the EU's charges will have little effect on Microsoft's behavior. They might have a point. Despite its protestations, Microsoft already offers versions of Windows that don't contain software bundles, including a unique Windows XP version specifically designed for the Thailand market. "Only time will tell whether the Commission's actions will have the desired effect," admitted Red Hat Senior Vice President, General Counsel, and Secretary Mark H. Webbink, whose company competes with Microsoft. Anyone who lived through the highs and lows of the US antitrust case would be wise to adopt a similar wait-and-see attitude.

So, what happens now? Aside from the possibility of a settlement, Microsoft faces two basic outcomes. First, the company could appeal the case and keep it hung up in European courts for so long that the next Windows version (code-named Longhorn) would ship in the interim. Longhorn will include several recently devised bundled technologies, including a Google-busting search engine that European investigators are just now starting to investigate. Like earlier antitrust cases, however, any postappeal verdict will likely be out of date by the time it happens, and we'll all wonder in 2008 or 2009 what the fuss over media players was about.

Second, the European courts could deny Microsoft an appeal, forcing the company to change its Windows products, at least in Europe, so that they don't include WMP. Doing so isn't a huge hardship, but it would impact the way the company develops future products, including Longhorn. Will Microsoft be forced to change Longhorn if it loses its case in Europe? Microsoft's legal representatives have already admitted that, yes, the company will do so. Whether those changes include removing integrated Internet search capabilities from Longhorn remains to be seen. But what happens if Google also complains about Microsoft's moves in either the United States or in Europe? The sheer weight of these interrelated product-bundling lawsuits will surely affect Microsoft's product planning going forward.

Regardless of the outcome, one fact is clear: Whether through fear of future reprisals or requirements of law, Microsoft's behavior will change further because of the EU antitrust case. Just as a "kinder and gentler" Microsoft emerged, if briefly, after its US antitrust case, I think we can expect to see a more open and competition-agnostic Microsoft emerge from this case, and it would behoove the company to show this new face to the world, effective immediately.